Rules 110 to 120 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rules 110, 111, 112, 119 and 120 of the Income-tax Rules, 2026 govern what an advance pricing agreement contains, how a rollback covering up to four preceding tax years is obtained for an additional Rs 5,00,000, how an application may be amended, how an agreement is renewed in Form No. 54 without pre-filing consultation, and the rule that filing an application does not suspend Chapter X.
Rule 110 — the terms of the agreement
An agreement may, among other things, include:
- (a) the international transactions covered;
- (b) the agreed transfer pricing methodology, if any;
- (c) determination of the arm's length price, if any;
- (d) the manner in which the arm's length price is to be determined, if any;
- (e) definitions of any relevant term used in (b), (c) or (d);
- (f) critical assumptions;
- (g) rollback provisions referred to in rule 111; and
- (h) any other conditions not provided in the Act or these rules.
Clauses (c) and (d) are alternatives, and the choice between them shapes the whole agreement. Fixing a price gives maximum certainty but ages badly; fixing the manner of determination — a method and a benchmarking mechanic — survives changing market conditions. Most agreements of any length settle on (d), sometimes with (b) and (e) doing the heavy lifting.
Critical assumptions — rule 110(2) to (7)
| Sub-rule | Effect |
|---|---|
| (2) | The agreement is not binding on the Board or the assessee if there is a change in any critical assumption or a failure to meet the conditions subject to which it was entered into |
| (3) | The binding effect ceases only if a party has given due notice to the other party or parties |
| (4) | On such a change or failure, the agreement may be revised or cancelled |
| (5) | The assessee shall give notice in writing of the change or failure to the Principal Chief Commissioner (International Taxation) as soon as it is practicable |
| (6) | The Board shall give notice in writing to the assessee as soon as it comes to the Board's knowledge |
| (7) | Revision or cancellation follows rules 115 and 116 respectively |
Sub-rule (2) says the agreement is not binding on a change in critical assumptions. Sub-rule (3) says the binding effect ceases only if due notice is given. So a critical assumption can fail without the agreement immediately falling away — notice is the operative event. And sub-rule (5) puts the duty to give it on the assessee, "as soon as it is practicable". Sitting on a known change is not a way to preserve the agreement; it is a compliance failure that feeds the rule 116 cancellation grounds.
This is also why critical assumptions should be drafted tightly and few. Every assumption written into clause (f) is a trigger that can unravel the agreement, and a long list of loosely worded assumptions makes the agreement fragile rather than thorough.
Rule 111 — rollback
The agreement may provide for determining the arm's length price, or the manner of determining it, during a rollback year — any tax year within the period not exceeding four tax years preceding the first covered year, per rule 103(j).
The five conditions — sub-rule (2)
- the international transaction is the same as that to which the agreement (other than the rollback provision) applies;
- the return of income for the rollback year has been or is furnished within the time specified in section 263(1)(c);
- the report in respect of the international transaction had been furnished within that time;
- rollback has been requested for all the rollback years in which that international transaction was undertaken; and
- the request has been made in Form No. 51 in accordance with sub-rule (5).
The two absolute bars — sub-rule (3)
Irrespective of anything in sub-rule (2), rollback shall not be provided for a rollback year if:
- (a) determination of the arm's length price for that year has been the subject matter of an appeal before the Appellate Tribunal and the Tribunal has passed an order disposing of that appeal at any time before signing of the agreement; or
- (b) applying the rollback would have the effect of reducing the total income or increasing the loss as declared in the return for that year.
Bar (b) makes rollback a one-way instrument. It exists to settle historical exposure on a consistent basis, not to generate refunds — a rollback that would produce a lower income than declared is simply not available for that year.
Bar (a) rewards moving early. Once the Tribunal has disposed of the appeal on the arm's length price for a year, that year is permanently outside rollback, and the cut-off is measured against the date the agreement is signed, not the date of application. A pending appeal is fine; a decided one is not.
Consistency and the fee — sub-rules (4) and (5)
- Where the rollback specifies the manner of determining the arm's length price, that manner shall be the same as agreed for the same international transaction in a non-rollback covered year.
- The rollback request is furnished along with the application, in Form No. 51, with proof of payment of an additional fee of Rs 5,00,000.
So the total front-end cost of an advance pricing agreement with rollback is Rs 25 lakh — Rs 20 lakh under rule 106 and Rs 5 lakh under rule 111(5).
Rule 112 — amending the application
- An applicant may request in writing for an amendment at any stage before the finalisation of the terms of the agreement.
- The Principal Chief Commissioner (International Taxation) for a unilateral agreement, or the competent authority of India for a bilateral or multilateral one, may allow it — but only if the amendment does not have the effect of altering the nature of the application as originally filed.
That limit is the whole of rule 112. Refining figures, updating financial data or clarifying scope is an amendment; converting a unilateral application into a bilateral one, or bringing in a materially different transaction, alters its nature and needs a fresh application with a fresh fee.
Rule 119 — renewal
A request for renewal may be made as a new application in Form No. 54, using the same procedure as in these rules, except pre-filing consultation under rule 105.
Two points follow. Renewal is a new application, so rule 106's fee and timing discipline apply to it — the renewal must be in before the first day of the first tax year it is to cover. And the exclusion of pre-filing is consistent with rule 105(6), which says the same thing from the other direction.
Rule 120 — miscellaneous, and the point that surprises applicants
- (1) Mere filing of an application does not prevent the operation of Chapter X of the Act for determination of the arm's length price until the agreement is entered into.
- (2) Negotiation between the competent authority of India and the competent authority of the other country or countries, in a bilateral or multilateral agreement, is carried out in accordance with the tax treaty.
Transfer pricing assessments, references to the Transfer Pricing Officer and adjustments continue while the application is pending. Given that advance pricing agreement negotiations commonly run for years, an applicant should expect ordinary proceedings for the covered years to run in parallel — and should plan the interaction, including the rule 117 modified-return route once the agreement is signed, rather than assuming the application freezes anything.
The fee summary
| Payment | Amount | Rule | Refundable? |
|---|---|---|---|
| Application fee | Rs 20,00,000 | 106 | Only where the application is not allowed to proceed under rule 108(7); not on withdrawal under rule 107 |
| Rollback additional fee | Rs 5,00,000 | 111(5) | Rule 111 makes no separate provision |
| Renewal | A new application in Form No. 54 | 119 | Per rules 106 to 108 |
Compliance checklist
- Prefer clause (d) — the manner of determining the price — over a fixed price for a multi-year agreement.
- Keep critical assumptions few and precisely worded; each is a trigger.
- Build a monitoring process for critical assumptions, and give the rule 110(5) notice promptly when one changes.
- For rollback, verify all four preceding years' returns and reports were timely — condition (2)(b) and (c) are absolute.
- Request rollback for every year the transaction was undertaken, not a selected subset.
- Check for a disposed Tribunal appeal on the arm's length price in any rollback year, measured to the signing date.
- Confirm rollback would not reduce declared income in any year — if it would, that year drops out.
- Pay Rs 5,00,000 extra with the Form No. 51 rollback request.
- Keep any amendment within the nature of the original application.
- File a renewal in Form No. 54 before the first day of the first year it covers.
- Plan for ordinary transfer pricing proceedings continuing during the negotiation.
Common mistakes
- Assuming the application suspends assessment proceedings.
- Writing a long list of critical assumptions and making the agreement fragile.
- Failing to notify a changed critical assumption and treating the agreement as still binding.
- Requesting rollback for selected years only.
- Seeking rollback to reduce declared income.
- Letting an appeal be decided by the Tribunal before the agreement is signed.
- Trying to convert a unilateral application to bilateral by amendment.
- Treating renewal as a continuation rather than a new application with its own timing.